Pro forma projections are important because they provide a financial model that shows how the property might perform under different scenarios, assumptions, and variables.

These assumptions can include changes to rental rates, future turn overs, occupancy rates, operating expenses, capital expenditures, and other factors that may affect the property’s cash flow and profitability. Pro forma projections can help you identify the property’s potential income and expense streams, as well as the cash flow and return on investment, including IRR (internal rate of return) that you can expect from the property. Pro forma projections are typically used by owners and real estate investors to help evaluate the potential risks, opportunities and financial feasibility associated with a property.

Underwriting, on the other hand, is important because it provides a rigorous analysis of the property’s current financial and market data.

It involves assessing a properties present cash flow, expenses, market conditions and capital expenditure. Underwriting helps to identify the risks and opportunities associated with the property and provides an objective assessment of the present situation. Through the underwriting process, investors can make informed decisions about the terms of the loan, such as the loan amount, interest rate, and amortization period.

In summary, both pro forma projections and underwriting are important when buying a multifamily property. Pro forma projections help you to identify the property’s potential income and expense streams, while underwriting provides a rigorous analysis of the property’s current financial and market data. The combination of both can provide a more complete picture of the property’s financial and investment potential, and help you make a well-informed investment decision.